Question

In: Economics

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government...

Asset Type	Asset Amount	Liability	Liability Amount
Reserves		Checkable Deposits
Loans		Bank Capital

Assume the government of Smithville uses measures of monetary aggregates similar to those used by the United States. The central bank of Smithville imposes a required reserve ratio of 20 percent. For additional information, refer to the figures below:

Bank Deposits held at the central bank = $400 million

Currency and coin held by the public = $500 million

Currency and coin in bank vaults = $200 million

Checkable deposits held by the banks in Broncoville = $1.4 billion

Traveler’s checks = $20 million

With the above information in mind, answer the following questions:

A. What is the size of M1?

B. Are commercial banks in Smithville holding excess reserves? If so, how much?

C. Can the commercial banking system increase checkable deposits? If so, by how much?

Expert Solution

Checkable bank deposits = $1.4 billion i.e $1400 million

A.

M1 = Currency held by the public + Checkable Bank deposits + Traveler's checks

= $500 + $1400 + $20

= $1920 million

B.

Excess Reserve = Actual Reserves - Required Reserves

Reserves = Cash in bank vaults + Bank deposits held at the central bank

= $200 + $400

= $600

Therfore, Actual reserves = $600

Required Reserves = Reserve requirement * Checkable deposits

= 20% * $1400

= $280 million

Excess Reserve = $600 - $280

= $320 million

C.

Yes, commercial banking system can increase checkable deposits by $1600 million

Excess reserve = $320 million

Therefore, increase checkable deposits by = $320 / reserve requirement

= $320 / 0.2

= $1600 million

Rahul Sunny answered 2 years ago

Assume that a bank has checkable deposits of $990, loans of value $813 and reserves at...

Assume that a bank has checkable deposits of $990, loans of value $813 and reserves at $177. The bank then receives a new deposit of $224. The required reserve ratio is 11%. After the new deposit but prior to asset transformation, the bank has excess reserves of _____, and then after asset transformation, so that excess reserves go to zero, the bank's total value of loans is now _____ . 1) 267.46 , 1080.46 2) 267.46 , 1014.54 3) 255.14...

A commercial bank has checkable deposits of $880, loans of $842,reserves at $80 and capital...

A commercial bank has checkable deposits of $880, loans of $842, reserves at $80 and capital of $42. What is the maximum write down in the value of the bank's loans that will keep bank capital from falling below $20?Group of answer choices$22$25$34$75

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and...

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and the required reserve ratio is 10%. The maximum amount of loans this bank can make is-

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is...

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $15,000 in currency into the bank and that currency is added to reserves. What level of excess reserves does the bank now have?

A bank holds its reserves as and . a. securities; loans b. securities; deposits at...

A bank holds its reserves as ________ and ________. a. securities; loans b. securities; deposits at the Federal Reserve c. vault cash; deposits at the Federal Reserve d. vault cash; loans If the Fed wishes to decrease the supply of money and credit, it may sell government securities, raise the discount rate, or lower required reserve ratios. True False

Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed...

Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed Rate Borrowings; $1200 Capital What is the equity multiplier for this bank? Why would a bank want to increase its EM? Why would a bank decrease its EM?

First National bank with Assets(Reserves: 20, Loans: 80), Liabilities(Deposits: 90, Share Capital: 10) Require reserve ratio...

First National bank with Assets(Reserves: 20, Loans: 80), Liabilities(Deposits: 90, Share Capital: 10) Require reserve ratio by the Fed is 10% If the bank experiences a deposit outflow of 15mn a. what is the new level of deposits? b. what is the new level of reserves? c. what is the resulting reserve ratio? d. if ratio is less than 10%, what would bank do for bringing more reserves?

Bank XYZ Balance Sheet ASSETS LIABILITIES Total reserves $3 comma 800 comma 000 Checkable deposits...

Bank XYZ Balance Sheet ASSETS LIABILITIES Total reserves $3 comma 800 comma 000 Checkable deposits $4 comma 000 comma 000 Required reserves $800 comma 000 Excess reserves $3 comma 000 comma 000 Loans $200 comma 000 The required reserve ratio is 0.20. If the Federal Reserve buys $1,000,000 worth of bonds from a bond dealer who has her account at Bank XYZ above and she deposits the entire $1,000,000 into a checking account at Bank XYZ, what will...

consider the following data: currency 850 billion checkable deposits 700 billion bank reserves. 700 billion Calculate...

consider the following data: currency 850 billion checkable deposits 700 billion bank reserves. 700 billion Calculate ghe values of currency-to- deposit ratio, the ratio of total reserves to deposits, the monetary base, the money multiplier and the M1 money supply

Bank of Wakanda has deposits of $1.2 billion. It holds reserves of $120 million and government...

Bank of Wakanda has deposits of $1.2 billion. It holds reserves of $120 million and government bonds worth $400 million. If the bank sells its loans at market value of $870 million, what is the bank’s net worth?